Page 11 - Reinsurance Management IC85

The Insurance Times

b. Ensure financial stability: For an insurance
company to operate profitably, the law of large
numbers should operate. This may not happen
because of a lack of balance in the insurer's
portfolio. Also the results in a year may be
affected by an unusually large claim or by a single
event leading to a large number of claims. It is
also desirable to avoid wide fluctuations in financial
results from one year to another. Reinsurance
provides such a function and ensures stability in
the operating results of a company.

c. Help the geographical spread of risks : Spreading
of risk with proper reinsurance in one class and
between different classes of insurance helps the "law
of large numbers" to operate. Reinsurance provides
an ideal opportunity for "geographical spread" which
in turn helps the company to balance its portfolio.

d. Ensure profitability and maintain solvency
margins: Where there are restrictions in premium
income vis-a-vis capital and free reserves, a well-
planned reinsurance programme can ensure

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